Federal prosecutors hit MtGox with subpoena as CEO tries to reassure public

MtGox CEO says in blog post that he's in Japan working to “find a solution.”

On Wednesday morning, the CEO of MtGox attempted to reassure the public that he had not run off with hundreds of millions of dollars of his customers' bitcoins. In a brief post on his embattled firm’s website, he wrote:

As there is a lot of speculation regarding MtGox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues.

Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. Please visit this page for further announcements and updates.

Further Reading

Meanwhile, MtGox has been hit with a federal subpoena by prosecutors from the Southern District of New York, according to anonymous sources quoted late Tuesday by the Wall Street Journal.

That district court most often deals with financial crimes and related malfeasance. A spokesperson for the court told Ars that it would not confirm nor deny any details of any pending investigation until charges were formally brought.

Japanese authorities, who have previously been relatively quiet on the matter, have said they are now looking into the sudden collapse of the popular Bitcoin exchange. At present, Bitcoin cannot be regulated in Japan as it is not defined as a currency under local law.

"At this stage the relevant financial authorities, the police, the Finance Ministry and others are gathering information on the case," Chief Cabinet Secretary Yoshihide Suga told reporters, according to the New York Times.

But that may change soon: lawmaker Tsutomu Okubo said that this situation had to change, and fast.

“The authorities’ stance that they don’t have responsibility is disgraceful,” Okubo, a former vice finance minister who also used to work at Morgan Stanley, told Bloomberg in a telephone interview. “We need to establish a legal system.”

185 Reader Comments

Just goes to show that you have to be smart about bitcoin. Keep your coins locally, not in an exchange. I await for the full Ars coverage on what happened yesterday - 750,000 bitcoins getting lost is ridiculous. As is having a bank of 2000 when you're dealing with the number of coins MtGox had, the exchange dropping down to be $135 each while everyone else is 500-600... there's a ton of data to go through and I look forward to the analysis.

Edit: to be clear I'm aware of the one up right now covering the basic details. I'm talking about the eventual report that gets into their financial situation, not being solvent, and maybe an idea of what to expect. It's a huge story involving hundreds of millions of dollars, it'd be a disservice to have small things here and there without putting together the story.

Quote: "Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. "

This guy seems completely detached from reality. He froze people's accounts, doesn't provide any useful information as to what is happening to their money, instructed his staff to not give any responses, and he thinks this all will reassure people that there is nothing to worry about and that he works tirelessly to solve this situation?

I'm happy that I don't have any money in there, but I feel for those people who have.

Guys I just thought of a new currency, shiny rocks like super shiny who wants in on the ground floor of this amazing investment opportunity all rocks are personally selected and stored in an undisclosed location.

This has been coming for months. The authorities should have started investigating when they froze currency payments out months ago. MTGox has been in bad shape for ages and now the jig is up.

I wouldn't expect Karpeles to do anything but flee prosecution at this point. He has already proved he's either horribly incompetent or possibly even complicit in the theft. Either way it's ultimately his responsibility.

“The authorities’ stance that they don’t have responsibility is disgraceful,”

I thought the whole point of Bitcoins was to avoid government intrusion, government regulations, government restrictions. So why do Bitcoin holders expect a government rescue when things go south?

Simple, if things go badly, it turns out they were betting someone else's money. If things go well, then no one ever helped them, they did it all by themselves, and taxes and government regulations are evil.

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

Bitcoin is the complete opposite of a regulated, transparent, and accountable financial instrument.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

Remind me, who is it who invented Bitcoin? Right, you don't know, because it's a faceless, anonymous person. And a 51% attack can be done by literally anyone willing to throw enough electricity at the problem. And this malleability issue, if that's actually how Gox lost their coins, that was regulated by who, exactly? And what part of the protocol will hold Gox accountable for either losing or stealing millions of dollars worth of coins?

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

Bitcoin is the complete opposite of a regulated, transparent, and accountable financial instrument.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

You are confusing the definition of regulated.

Full Definition of REGULATE1a : to govern or direct according to ruleb (1) : to bring under the control of law or constituted authority (2) : to make regulations for or concerning <regulate the industries of a country>2: to bring order, method, or uniformity to <regulate one's habits>3: to fix or adjust the time, amount, degree, or rate of <regulate the pressure of a tire>

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

Bitcoin is the complete opposite of a regulated, transparent, and accountable financial instrument.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

Remind me, who is it who invented Bitcoin? A faceless, anonymous person? And a 51% attack can be done by literally anyone willing to throw enough electricity at the problem. And this malleability issue, if that's actually how Gox lost their coins, that was regulated by who, exactly? And what part of the protocol will hold Gox accountable for either losing or stealing millions of dollars worth of coins?

Does it matter who invented Bitcoin? The protocol itself is sound. Do you care who invented the Internet? No, but you trust it nonetheless.

You throw around the "51% attack" phrase without actually knowing what it is or how the logistics of it would work (because if you did know how it worked, you wouldn't make such an asinine claim about it.) Same with the transaction malleability "issue".

The protocol is not responsible for regulating the activities of exchanges anymore than companies offering shares are responsible for regulating the NYSE.

MtgOX's current woes are a result of its mismanagement, lax security protocols, improper use of the Bitcoin protocol and sheer hubris. None of which reflect on the state of the Bitcoin protocol itself. Bitcoin itself keeps on trucking along.

When people talk regulations they mean something to help prove it's reliable and relatively safe. Security is implied with a way to recover damages. Now technically if you mean at a basic level, it can work for most of this. Just when you involve third parties to manage it and put it online you're adding risk because now you've transferred your ownership and are playing on honor alone. You aren't protected of failure and it's why there's a good chance very little is legally done here. Government involvement makes sense because you're talking about an obscene amount of money but it's not there yet.

For now, again, use an offline wallet if you truly want to be safe. You need to take security into your own hands. That's the basic rule of bitcoin people seem to forget: it's only as safe as you make it.

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

It's not government regulated, which is why MtGox didn't have to have, and so didn't buy, deposit insurance. It turns out the big, scary government comes up with their regulations for a reason.

Deposit insurance is a bank thing. MtGox is more like a brokerage. Brokerage accounts do not have the same protection as your savings account. Go take a look at your favorite brokerage site and notice the NOT FDIC insured message.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

Isn't this like saying cash is highly regulated because it is printed on paper?

Quote: "Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. "

This guy seems completely detached from reality. He froze people's accounts, doesn't provide any useful information as to what is happening to their money, instructed his staff to not give any responses, and he thinks this all will reassure people that there is nothing to worry about and that he works tirelessly to solve this situation?

I'm happy that I don't have any money in there, but I feel for those people who have.

The not questioning thing might be for legal reasons, going quiet and letting your lawyer/solicitor do the talking is usually how things go.

But yeah, this is amateur hour with the PR. With a community that's generally against govt. intrusion there's probably some great soundbites he could throw out.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

So it should be transparent where all those coins are, right?

Or is the attraction an ideological one?

Indeed, it is 100% completely transparent where all the coins have gone. In fact, if yo have the smarts to do it, you can account for, track and follow every bitcoin transaction that has ever happened in the block chain.

When people talk regulations they mean something to help prove it's reliable and relatively safe. Security is implied with a way to recover damages. Now technically if you mean at a basic level, it can work for most of this. Just when you involve third parties to manage it and put it online you're adding risk because now you've transferred your ownership and are playing on honor alone. You aren't protected of failure and it's why there's a good chance very little is legally done here. Government involvement makes sense because you're talking about an obscene amount of money but it's not there yet.

For now, again, use an offline wallet if you truly want to be safe. You need to take security into your own hands. That's the basic rule of bitcoin people seem to forget: it's only as safe as you make it.

Governments around the world are beginning to craft regulation for Bitcoin exchanges, as they should. You won't find very many Bitcoin advocates arguing against such regulation.

Having exchanges regulated by local governments can only be a good thing for bitcoin. Having interchanges where you can be reasonably assured that your money will not suddenly disappear due to malice (or in the case of MtGox, gross incompetence and failure to read the protocol documentation) in no way removes the currencies utility as a (partially psuedonymous) decentralised interchange system. The libertarian fringe can still avoid exchanges and perform in-person transactions (as they can already do with cash, bullion etc) and everyone else benefits from improved stability.

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

Bitcoin is the complete opposite of a regulated, transparent, and accountable financial instrument.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

You are confusing the definition of regulated.

Full Definition of REGULATE1a : to govern or direct according to ruleb (1) : to bring under the control of law or constituted authority (2) : to make regulations for or concerning <regulate the industries of a country>2: to bring order, method, or uniformity to <regulate one's habits>3: to fix or adjust the time, amount, degree, or rate of <regulate the pressure of a tire>

Bitcoin is 3 and possibly 2, but not 1.

Bitcoin absolutely falls under #1. It has an authority and a constitution. The authority is comprised of the tens of thousands of Bitcoin miners, and the constitution is the Bitcoin white paper (PDF). You may not accept it as a valid constituted authority, in which case you shouldn't transact in it. But millions of people around the world do accept it, and it absolutely is regulated.

I steal your bitcoins...you go to the police, they laugh at you. I win. I don't think regulated means what you think it means.

I've always gotten the impression this wild west, everything-at-your-own-risk scenario is what the bitcoin believers wanted.

What attracts people to Bitcoin is that it is regulated in a completely transparent, democratic and fair way. It is not unregulated, and you won't find anyone asking for it to be unregulated.

Bitcoin is the complete opposite of a regulated, transparent, and accountable financial instrument.

Wrong. Bitcoin is regulated, just not by a small group of faceless bankers. It is regulated by a protocol; that protocol is completely open-source (i.e. transparent) and it is enforced through ongoing majority rule from an electorate that anyone can join at any time. Furthermore, its accounting is completely public and can be audited by anyone at any time.

Bitcoin is the very definition of a regulated, transparent and accountable financial instrument.

You are confusing the definition of regulated.

Full Definition of REGULATE1a : to govern or direct according to ruleb (1) : to bring under the control of law or constituted authority (2) : to make regulations for or concerning <regulate the industries of a country>2: to bring order, method, or uniformity to <regulate one's habits>3: to fix or adjust the time, amount, degree, or rate of <regulate the pressure of a tire>

Bitcoin is 3 and possibly 2, but not 1.

Bitcoin absolutely falls under #1. It has an authority and a constitution. The authority is comprised of the tens of thousands of Bitcoin miners, and the constitution is the Bitcoin white paper (PDF). You may not accept it as a valid constituted authority, in which case you shouldn't transact in it. But millions of people around the world do accept it, and it absolutely is regulated.

What powers does that authority have and what can it enforce? What protections does that authority guarantee? How will the authority of miners (out for themselves) and a white paper give back the $400MM in lost Bitcoin?

Without enforcement and protection, your "constitution" is as worthless as soiled toilet paper.